ACCTG 029 – ACCOUNTING FOR BUSINESS COMBINATIONS

MODULE 2: CONSOLIDATED FINANCIAL STATEMENTS

Problem 1: Pedro Company owns 80,000 shares of Santa Corporation’s 100,000 outstanding common shares, acquired at
book value. The December 31, 2018 consolidated balance sheet presented by Pedro and Santa included net assets of
Santa in the amount of P600,000. On January 1, 2019, Pedro sells 70,000 shares of Santa for P490,000. The fair value of
Pedro’s remaining 10% interest in Santa is P70,000. What amount of gain or loss, if any, should be recognized on the
sale of Pedro’s shares resulting in deconsolidation, and how much of that should be attributed to Pedro?
1. Determine the gain or loss on disposal (or deconsolidation)
a. P40,000 loss b. P80,000 loss c. P10,000 gain d. P80,000 gain

Problem 2: The financial statements for Goodwin Inc., and Corr Company for the year ended December 31, 2019 prior to
Goodwin’s business combination transaction regarding Corr follow (in thousands):
Particulars Goodwin Carr
Revenues P2,700 P600
Expenses 1,980 400
Net Income P720 P200

Retained earnings, 1/1 P2,400 P400

Net income 720 200
Dividends (270) (0)
Retained earnings, 12/31 P2,850 P600

Cash P240 P220

Receivables and Inventory 1,200 340
Buildings (net) 2,700 600
Equipment (net) 2,100 1,200
Total assets P6,240 P2,360

Liabilities P1,500 P820

Common stock 1,080 400
Additional paid in capital 810 540
Retained earnings 2,850 600
Total liabilities and equity P6,240 P2,360
On December 31, 2019, Goodwin issued P600 in debt and 30 shares of its P10 par value common stock to the owners of
Corr to purchase all of the outstanding shares of that company. Goodwin shares had a fair value of P40 per share.
Goodwin paid P25 to a broker for arranging the transaction. Goodwin paid P35 in stock issuance costs. Corr’s equipment
was actually worth P1,400 but its buildings were only valued at P560.
2. If the combination is accounted for as an acquisition, at what amount is the investment recorded in Goodwin’s
books?
a. P1,540 b. P1,800 c. P1,825 d. P1,860
3. Compute the consolidated revenues for 2019
a. P3,300 b. P2,700 c. P1,540 d. P720
4. Assuming the combination is accounted for as an acquisition, compute the consolidated expenses for 2019
a. P1,980 b. P2,005 c. P2,015 d. P2,040
5. Compute the consolidated cash account at December 31, 2019
a. P460 b. P435 c. P425 d. P400
6. Compute the consolidated buildings (net) account at December 31, 2019
a. P2,700 b. P3,370 c. P3,260 d. P3,300
7. Compute the consolidated equipment (net) account at December 31, 2019
a. P2,100 b. P3,200 c. P3,300 d. P3,500
8. Assuming the combination is accounted for as an acquisition, compute the consolidated goodwill account at
December 31, 2019:
a. P 0 b. P100 c. P125 d. P160
9. Compute the consolidated common stock account at December 31, 2019
a. P1,080 b. P1,380 c. P1,480 d. P2,280

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10. Compute the additional paid in capital account at December 31, 2019
a. P810 b. P1,350 c. P1,675 d. P1,910
11. Assuming the combination is accounted for as an acquisition, compute the consolidated retained earnings at
December 31, 2019
a. P2,800 b. P2,825 c. P2,850 d. P3,425

Problem 3: Power Corporation acquired 70 percent of Silk Corporation’s common stock on December 31, 2019. Balance
sheet data for the two companies immediately following acquisition follow:
Item Power Silk
Cash P44,000 P30,000
Accounts receivable 110,000 45,000
Inventory 130,000 70,000
Land 80,000 25,000
Buildings and equipment 500,000 400,000
Less: Accumulated depreciation (223,000) (165,000)
Investment in Silk Corporation stock 150,500
Total Assets P791,500 P405,000
Accounts payable P61,500 P28,000
Taxes payable 95,000 37,000
Bonds payable 280,000 200,000
Common stock 150,000 50,000
Retained earnings 205,000 90,000
Total liabilities and stockholders’ equity P791,500 P405,000
After the date of business combination, the book values of Silk’s net assets and liabilities approximated their fair value
except for inventory, which had a fair value of P85,000, and land, which had a fair value of P45,000. The fair value of
non-controlling interest was P64,500 on December 31, 2019. For each of the questions below, indicate the appropriate
total that should appear in the consolidated balance sheet immediately after the business combination on the basis of full
goodwill (fair value) approach.
12. What amount of inventory will be reported?
a. P179,000 b. P200,000 c. P210,500 d. P215,000
13. What amount of goodwill will be reported?
a. P 0 b. P28,000 c. P40,000 d. P52,000
14. What amount of total assets will be reported?
a. P1,081,000 b. P1,121,000 c. P1,196,500 d. P1,231,500
15. What amount of Investment in Silk will be reported?
a. P 0 b. P140,000 c. P150,500 d. P215,000
16. What amount of total liabilities will be reported?
a. P265,000 b. P436,500 c. P622,000 d. P701,500
17. What amount will be reported as non-controlling interest?
a. P42,000 b. P52,500 c. P60,900 d. P64,500
18. What amount of parent’s share or controlling interest in related earnings will be reported?
a. P295,000 b. P268,000 c. P232,000 d. P205,000
19. What amount of consolidated retained earnings will be reported?
a. P295,000 b. P268,000 c. P232,000 d. P205,000
20. What amount of stockholders’ equity will be reported?
a. P355,000 b. P397,000 c. P419,500 d. P495,000

21. Par Company owns 60% of Sub Company’s outstanding capital stock. On May 1, 2019, Par advanced Sub
P70,000 in cash, which was still outstanding at December 31, 2019. What portion of this advance should be
eliminated in the preparation of the December 31, 2019 consolidated balance sheet?
a. P70,000 b. P42,000 c. P28,000 d. Zero
22. Dean, Inc. owns 100% of Roy Corporation, a consolidated subsidiary, and 80% of Wall, Inc., an unconsolidated
subsidiary at December 31. On the same date, Dean has receivables of P200,000 from Roy and P175,000 from
Wall. In its December 31 consolidated balance sheet, Dean should report accounts receivable from investees at:
a. P 0 b. P35,000 c. P175,000 d. P235,000